Sprint Nextel (S) is allegedly in negotiations with Telefon AB LM Ericsson to subcontract management of its cellular network. The move, which could cost Sprint as much as $2 billion over the next few years, would enable the carrier to cut costs by approximately 20 percent as it outsources 5,000 to 7,000 US jobs to the equipment manufacturer.
Subcontracting to Ericsson, if it occurs, will be the latest twist in what has become something of a slow-motion car wreck. While the recent recession has made hard-luck business stories common, Sprint has been falling apart since long before a tanking economy made self-immolation stylish. Whether through its horrifying customer service or its deliberate cancellation of demanding subscribers, Sprint has become a case study in what happens when a company dedicated to communication finds itself completely incapable of connecting with its users.
On the bright side, Sprint may have discovered the secret to staying in business despite what appears to be a corporate personality disorder. The Boost prepaid network has enabled the company to sell cell phones without contracts, meaning that it can stick to its core strength of providing cellular service while totally avoiding its Achilles heel: human interaction. (Even Boost ads seem to suggest that the lack of personal interaction with the company is a plus.) By aggressively pursuing the "sub-prime" cellphone market, Sprint also seems to have tripped across a revenue stream that was largely untapped.
The company picked up approximately 764,000 Boost customers in the first quarter. At $50 per month, the pay-as-you-go network is competitive with other providers, and the lack of contracts makes it highly attractive to struggling consumers who are worried about their long-term finances. Combined with the addition of 394,000 wholesale and affiliate subscribers, Boost helped Sprint offset its continued customer hemorrhaging. In the first quarter, the provider had a net loss of "only" 182,000 subscribers; a year ago, first quarter losses were on the order of 2.5 million.
All told, in fact, Sprint is doing surprisingly well. As CEO Dan Hesse noted, the company generated enough income in the first quarter to cover all of its debt for the year. Further, while its net revenues are running 17.6 percent more in the red than in the first quarter of 2008, the popularity of Boost and Kindle, the Amazon e-reader for which Sprint is the exclusive network, suggest that it might have find a way to work around its seeming inability to avoid infuriating its subscribers.